Boutique biofuels

Just as mainstream markets begin to embrace corn-based ethanol and soybean-based biodiesel, a new crop of entrepreneurs is hot on the hunt of better “boutique” feedstocks and better methods to make and sell biofuel.

Like beermakers dabbling in microbrews, mavericks in the biofuels world are getting creative with their ingredients. Their craft varies greatly from the industry standard of blanketing available farmland with corn and soybean (or in Brazil’s case, sugar cane) to yield only a single-digit percentage of the world’s fuel needs.

Candidates for new fuel feedstocks include biomass waste products such as sawdust and sludge, a variety of oil-producing algae, oil-rich seeds such as canola and mustard, and wild grasses such as switchgrass and miscanthus. Entrepreneurs are attempting to extrapolate energy in everything from sea plankton to rejected Little Debbie snack cakes. In each case, the key is finding a boutique feedstock that offers a high yield without being a critical food source. As the search for economically attractive feedstocks continues, researchers are also improving the process by which biofuels are produced.

Of money and mandates
The reason research money is pouring into these endeavors is that conditions for the perfect biofuel storm have hit. The negative conditions of high oil prices, worry over global warming and dependence on foreign oil have prompted state and local mandates for biofuel use, as well as a federal ethanol incentive in place until 2010. In early 2006, the Washington Legislature passed a law requiring that by 2008 all diesel sold in the state be at least 2 percent biodiesel. Lawmakers in Oregon and other states are mulling similar legislation. Portland was the latest to hop on that bandwagon when its city council in July 2006 approved a measure requiring stations to blend 5 percent biodiesel and 10 percent ethanol at citywide pumps starting July 2007.

Ethanol plants like this one, are popping up around the country. Courtesy Pacific Ethanol

Two to three ethanol plants open each month in the United States, and about 4.5 billion gallons are expected to be produced domestically by the end of 2006. Biodiesel capacity is also gushing, from 75 million gallons refined in 2005 to about 325 million gallons projected to be refined this year.

Big Oil has accepted the presence of blended biofuels, and big money is flooding into biofuel start-ups. Companies such as Chevron (NYSE: CVX), Shell (NYSE: RDS-B) and BP (NYSE: BP) recently launched biofuel subsidiaries. David Morris, vice-president of the Institute for Local Self Reliance, estimated in a recent analysis that Wall Street will pour $3 billion into ethanol investments in 2006.